People who apply for credit cards online have worse credit histories than the average Internet user, according to a recent study — but some banks disagree.
The study indicates that banks using the Internet to sign new cardholders may be wasting their advertising money, because a high percentage of applicants are likely to be turned down, said Asaf Buchner, who wrote it.
Mr. Buchner is an associate analyst with the Jupiter Research division of Jupitermedia Corp. of Darien, Conn. His study was released last week.
In an online survey this summer, Jupiter asked 3,875 adults how good their credit history is. Five hundred twenty-two of them said they had applied for cards online.
Thirty-six percent of the respondents said their credit history was excellent, against only 24% of the online card applicants. Only 12% of the respondents said it was poor — but 20% of the online applicants did.
Mr. Buchner said the credit rating company Experian Inc. told him that self-reported ratings are generally very accurate.
People with shaky credit may apply online to avoid the embarrassment of being declined over the phone or in person, he said. They may also do so because they get few card offers, he said.
The card advertisements on search engines may attract people who have little chance of being approved for cards, Mr. Buchner said — but issuers must sometimes pay more than $5 when someone clicks on their ads.
The ads appear alongside search results when people search for terms such as “credit card,” for example. Companies bid on various terms as if in an auction: the highest bidder gets the highest placement on the results Web page.
Though search sites are starting to provide advertisers with some demographic information about the people who click on ads, such as age or location, they cannot provide credit data, Mr. Buchner said.
“Search is an activity that is performed by all the online population,” he said, “so it’s difficult to identify, when someone is searching for a credit card, what are their [credit] characteristics.”
Amy Radin, the “executive vice president of customer engagement” for Citigroup Inc.’s cards business, said people who apply for Citi cards online do not generally have worse credit than other applicants. She would not say how many of the online group are rejected.
The idea that online applicants have probably been missed by banks’ non-Internet marketing is also mistaken, Ms. Radin said. In fact, she said, Citi’s other marketing attracts many people to its Web sites.
For example, she said, many people who saw Citi’s zero-liability television advertising campaign last year wound up at a Citi site by searching for terms such as “funny Citi ads.”
As for online applicants avoiding the phone, “Sometimes, people go online and they may actually have to call customer service” for help completing an application, Ms. Radin said.
Mr. Buchner said that card issuers can avoid paying for clicks from unacceptable applicants by making eligibility requirements explicit in their search-engine ads. That is part of American Express Co.’s online card strategy, he said.
Amex has an online ad that says, “Reward yourself for having excellent credit.”
Judy Tenzer, a spokeswoman for Amex, declined talk about its rejection rates for online applicants or the effectiveness of specific advertising strategies.
Like Amex, HSBC Holdings PLC makes it clear in search-engine ads what kind of customer it wants for its “Orchard Bank” brand. Unlike Amex, it is not aiming upscale.
“Over 2 million customers use the Orchard Bank MasterCard to help them establish or re-establish their credit. Let us help you too,” the ad says.
HSBC spokespeople would not discuss online strategy.
Mr. Buchner said that in addition to buying their own search-engine ads, issuers could do better target marketing by working with third-party Web sites such as CreditCards.com.
CreditCards.com, operated by ClickSuccess LP of Austin, categorizes various banks’ offers to help people find cards appropriate to their credit history and spending habits.
When people search for “credit card” online, 22% of the clicks on ads that appear are on CreditCards.com’s ad, Mr. Buchner. On Wednesday the company was third-highest bidder for the term on Yahoo’s site.
Ben Woolsey, a spokesman for CreditCards.com, said in an e-mail:
“Banks effectively perform online marketing on their own, but we are able to extend their efforts by reaching consumers who are earlier in the card decision process and don’t have loyalty to a certain bank brand. … We market multiple offers that span the entire credit quality spectrum, allowing online consumers to find the credit card that matches their credit profile.”
Mr. Woolsey also said that it is more cost-effective for banks to use CreditCards.com than paid links. “We operate on a pay-for-performance basis, where we assume the financial risk of acquiring and directing interested credit card applicants to the issuers.” Banks pay only if they acquire a customer through an ad on CreditCards.com.
Ms. Radin said that Citi uses CreditCards.com and pays to receive favorable placement on it, but that the site works neither better nor worse than marketing directly through search-engine ads or other means.
What an ad says is often more important than where it appears, she noted.
For example, “pricing can change daily or even more frequently than that,” so consumers who comparison shop may be exposed to better offers as they keep shopping at various Web sites.
“Small details on the Web can have a big impact,” Ms. Radin said.
